If I Buy a Duplex, Can I Use the Tenants Rent Towards My Mortgage and Can I Still Use the Down Payment Assistance (dpa) that I've Been Approved for?
As a Mortgage Loan Originators (MLO) here in Los Angeles & Ventura counties, I work with a lot of low-medium income first time buyers who are using dpa to purchase their first home. I personally love it when my borrowers are thinking about their future investment needs.
In my continuing series of answering some of the frequently asked questions that I get from prospects and clients, in Part 9, I want to answer a question that can present some rewarding opportunities for first time buyers who are upto the challenges.
I say opportunities because in this particular scenario, I can not only help my borrowers buy their first home but their first investment property as well. While I love it when my borrowers are thinking ahead like this, being a landlord is not for everyone. Dealing with rental properties and tenants can be extremely challenging (as well as costly); I speak from personal experience when I say that.
For many of my young, single, first timers, who have been pre-approved for some dpa, all they're looking for in their first home is a small, affordable and manageable property to live in. Many just want to purchase a small condo close to work (typically in urban employment centers) but with the challenges of purchasing condos around here, many of my borrowers often result to small, modest homes in areas that are typically outside of their desired areas (and farther from work) in order to still stay within their budget.
The problem with this scenario is that my borrowers may now have to consider roommates in order to keep their expenses down and more often than not, they're actually looking to get away from roommates and certainly don't want to live with anymore roommates. However, with a duplex, they still get to have a place of their own and still get a little help with their expenses.
To answer the question, "if I buy a duplex, can I use the tenants rent towards my mortgage and can I still use the dpa that I've been approved for"? No & No. For starters, dpa programs are strictly for one unit, owner occupied properties so duplexes aren't eligible. Secondly, while a tenants rent can help a borrower qualify for a higher mortgage, the tenants rent is not applied to the mortgage payment. A tenants rent may be used as additional income for the borrower in order for the borrower to qualify for a higher sales price.
However, in order for a borrower to be able to use a tenants rent as additional income, there needs to be a history of stable tenancy and even then, only 85% of the rent can be used as additional income for the borrower.
For example, for approximately $2,000 a month (PITI) a qualified borrower could purchase this downtown Los Angeles duplex. One unit is vacant but the other unit is currently leased to a long term tenant for $1,400. A buyer would be able to include $1,190 a month as additional income in order to qualify for a higher sales price.
Minutes from the metro rail, restaurants, shopping in the wholesale district and entertainment in the art district, this nicely rehabbed duplex has 3bd/1ba in each unit. Both units are freshly painted, new flooring (carpet/tile) throughout, new cabinets and counters in the kitchens and bathrooms. There is also storage in the basement and a storage unit in the back of the lot.
Today's real estate market and lending environment can be really scary, which is why it's important to get as much information as possible before starting your search. Finding out more about affordable home loan options and getting pre-approved is an absolute must.
The pre-approval process is not a simple process and it's because it can get really complicated and convoluted, that borrowers today need affordable loan options that are best suited for their own needs.
If you have any questions and/or concerns or if I can be of any assistance, please feel free to contact me, Donne Knudsen, at 805.2069123 or donne4loans@earthlink.net. That's what I'm here for and I would love to be able to assist you in your search for an affordable home loan.
What Kind of First Time Buyer Programs are Available in Los Angeles & Ventura Counties? FAQ - #1
What kind of property can I buy? FAQ - #2
What Kind of Paperwork Do You Need to Pre-Approve Me? FAQ - #3
What Kinds of Things Can Go Wrong in the Loan Process? FAQ - #5
What are Impound Accounts & Why Do I Need to Have Them in Order to Close My Loan? FAQ - #6
Can You Help Me Get My Kid Get Out of My House? FAQ - #7
I'm Supposed to be Closing Next Week Can You Help Me? FAQ - #8
What Happens if My Appraisal Comes in Low? - FAQ #10
What is a HomePath Property and How Can I Buy One? - FAQ #11
Can I Still Get a Loan if I Don’t Have Perfect Credit? – FAQ #12
Are There Still Loan Programs Where I Don't Have to Put Anything Down? - FAQ #13
Photos courtesy of flickr: bradleyalexander giacomomacis
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